28% of homes were running at an EBITDAR (cash) loss for the nine months to 31 March 2021 – and the $10 per bed day increase in the Basic Daily Fee supplement won’t ease the pain by much – according to the accounting firm’s latest financial performance survey.
The March 2021 survey looked at detailed financial and supporting data from 1,174 aged care homes (95,097 beds/places) – or around 44% of the sector – and 45,306 home care packages – around 30% of the total packages – across Australia.
The findings show that residential care’s finances improved thanks to net COVID-19 special funding and the 30% viability supplement for rural and remote homes.
However, the average result is still a deficit of $6.10 per bed per day or $2,060 per bed per annum (down from an $8.23 deficit per bed per day/ deficit $2,835 per bed per annum in March 2020).
If you exclude the net COVID-19 funding surplus and the number of homes making an operating loss climbs to 60% of homes.
Excluding COVID-19 funding, 32% of homes would have had an EBITDA loss.
Occupancy continuing to decline
StewartBrown attributes this to a further decline in occupancy from 94.13% (March 2020) to 92.47% for the nine months to March 2021.
“This decline of 1.66% is significant compared to the previous five years and has been impacted by the effects of COVID -19 to a certain extent and the large increase in the number of home care packages available to a greater extent,” they write.
In total, occupancy has declined by 1.3% in the past 12 months for all homes, and by 1.7% for mature homes at their expected full operating capacity.
Administration costs also continue to account for a considerable chunk of change.
For the year to March 2021, the direct costs of providing everyday living services exceeded the revenue by $8.85 pbd (up from $8.82 pbd in March 2020). However, administration costs (including procurement, payroll, rosters, accounts, quality control, insurances, human resources and corporate costs) further increase this deficit (loss) to $21.44 pbd.
Regional and remote homes showing signs of improvement
Interestingly, regional and remote homes have recorded a significant improvement in performance of $4,909 pbpa (net covid-19 surplus $2,426 pbpa) driven by the COVID-19 funding, increased occupancy and the 30% viability supplement.
However, StewartBrown notes homes in all geographical locations are continuing to operate with losses – and the $10 increase in the Basic Daily Fee to be introduced this month will only “will provide some relief unless it is required to support improvements (through additional expenditure) in food quality”.
The extra funding also won’t save the sector from another year of financial losses.
“Our forecast projections for FY22 indicate an average operating loss for the sector of $1.31 pbd based on the current funding settings and full retention of the $10 pbd supplement,” the analysis states.
This will continue to impact on the level of investment in residential care, it adds.
“Legislative uncertainty is one impact with this, but lack of financial sustainability is the key driver. Certain media commentary has suggested that Providers are achieving higher levels of profitability than the Survey results suggest.”
Further measures needed
The analysis concludes that further initiatives are needed to improve financial performance, including:
- Subsidy funding indexation to match the increased staff costs and the 0.5% increase in the superannuation levy from 1 July 2021. “We note that the recently announced COPE (inflation) increase effective from 1 July is 1.1%, and our analysis indicates that this will be insufficient to meet the increased staff related costs including the minimum wage increase across Modern Awards of 2.5% from 1 July 2021.”
- Deregulation of the Basic Daily Fee
- Restructure the accommodation pricing model to allow a deferred rental component to be deducted from RADs. “If the deferred rental component was 70% of the DAP it would amount to $13.20 per bed day ($4,453 per bed per annum) increased revenue and provide certainty to providers in relation to a return on capital investment.”
- Provide GAP funding to cover the minimum wage increase of 2.5% and further potential increase as a result of the upcoming Health Services Union claim for improved aged care wages to be heard by the Fair Work Commission in October.
StewartBrown is not the only group calling for action on this final point – see the wages story further down.